Why I hate the Estate Tax
I hate the Federal Estate Tax.
Because it's too low.
Now while more people are working, and unemployment stays relatively low, more and more of the nation's wealth is being concentrated into the hands of fewer and fewer people with devastating effects for the rest of the country. One aspect of the current levels of economic inequality is extraordinarily repulsive: generational wealth.
The two biggest talking points that i hear to defend this discrepancy between rich and poor is that either those at the top have "earned it", or that parents should be allowed to pass on their wealth to their children to take care of them. These two points feed off one another in a cycle of perpetuated, generational wealth.
To the second point half of this equation, first. When it comes to the question of how much an individual should be allowed to leave to their next generation, people seem to throw any sort of restriction out the window. I've heard some variation of the following line more times than I can count in conversation,
"Well you should be able to leave it all to your kids, If I've earned it then I should be allowed to do it with it what I want." The idea is that because the individual "earned" their money, than it is theirs to do with as they see fit. To which I totally agree. Stocks and bonds, real estate and gold, cocaine and hookers? Whatever floats your boat. My problem with people passing on obscene amounts of wealth, and let's be real, $5,600,000 dollars tax free is indeed an obscene amount of money. And while I'm fine with a parent paving the way for their progeny, I don't support free rides. You earned that money, but if you happened to be the sperm and egg of billionaires you can hoof it with everyone else. There's nothing necessarily special or spectacular about you, and you haven't earned anything. You also haven't contributed anything to society while skimming the greatest degree of benefits and influence you can.
This isn't including the fact that if you have a spouse you can double this number for your kids turning that upwards of 11 Million dollars. Let's add in again the fact that you can give, tax free, up to 15,000$ in gifts annually(30,000 dollars per person per year if we factor in the couple factor), plus the fact that there are a plethora of ways in which one can circumvent the tax using trusts and funds. My point in adding all of this up is that while I respect wanting to ensure a good future for your children, and grandchildren, there is a limit before it becomes harmful. How much does a child need before it's their own fault if they lose it?
Let's give a hypothetical scenario of how well someone that receives a million dollars from their parents can easily make annually. If you manage your stock portfolio and investments wisely, there's no reason that you can't achieve eight percent interest on that million dollars that your family left you. That's 80,000 dollars a year, at let's say 15 percent interest, although likely that you'll be paying significantly less in taxes. That's 68,000 dollars a year. Now that's not including whatever else this person is making at their regular job to add on top of this number. Now they have a sizeable annual income without even touching the original million.
So now you have an individual who has "earned" none of that million dollars, and who now has now perpetuated the beginnings of a cycle that can snowball wildly out of control, as we see today. Now I'm going to use the R word that some people find themselves screaming at like it's a crucifix at a vampire convention. Redistribution. People make a wild jump that any sort of rebuilding the jenga tower that is our current level of wealth, is a call for the workers to seize the means of production. It's not even a call for regulation of industry at all. It's to make things better for everyone. What it will mean is that we can pump hundreds of millions of dollars into a failing public system being strangled from its lack of funds, repave every broken road from Maine to California, and push forward grants and funding for a new surge of technological and scientific innovation that we haven't seen since the space race.
I can hear from the back of the room calls to the effect of, "What about state estate taxes? You're just talking about federal estate taxes." I'm glad you asked, several states don't even have an estate tax or an inheritance tax such as Indiana. State taxes are so at most 16 percent, and have caps as high as 5.6 million in Delaware and Hawaii, matching the federal exemption levels.
Since 2001, the level of exemption allowed for the federal estate tax has nearly quintupled. In 2001 the federal estate tax was 650,000, adjusted for inflation that's just under 900,000. So the amount that you can pass on, tax free, as an individual has gone from not even 1 million dollars all the way to 5.6 million dollars. In fifteen years, the estate tax exemption has multiplied by more than five times at the rate of inflation.
For example good roads and infrastructure. Bad roads lead to extensive damage to cars as well as wear. This leads to more car trouble, more often which adds up to bigger bills to each person individually. Now good roads not only cut down on the amount of wear and tear that cars rack up, they ride smoothly, comfortably, and look good. Now if you add up all of the cost to fix the wear and tear of cars, and the amount of additional miles that could be brought out of every car, that becomes so much higher than an insignificant portion from each person to keep roads and bridges in good condition.
People like the concept of patriotism, pride, oneness as a nation, until it comes to collective responsibilities. Then it's every person for themself. The thing is, in the United States, we are stronger together. We made unions because we learned that unless workers united, they'd be slaves and treated as such. We came together and fought for civil rights, because unless we all were brought out of the abyss that comes from the subjugation of a people, we are all slaves. We come together and pay taxes and pool our resources, not because we agree with every single decision or expenditure that our government creates or makes, but because we can achieve great technological advancements and the construction of ungodly marvels only when we pool our resources. Some things can only be done with the energy of many and cannot be achieved alone. The bundle of sticks doesn’t bend or break when the single twig snaps. If the many work towards those larger and loftier goals, than the many benefit tenfold above what they might have alone.
I do believe in reasonable limits on the estate tax however, and I think that a million dollars every generation is a perfectly reasonable rollover for a tax free exemption, above that estates should be taxed as high 60 percent above that million. If you have five million dollars than you pass on 2.6 million of that total to the next generation. I cannot emphasize enough that only the uppermost, wealthiest of the wealthy families. would be hit, the top 1% in fact. Why not take all of it, some might say in the opposite direction. If an individual has built up so much, they do have a right to pass on that wealth, and to help future generations of their family. And if they’re smart, industrious, and disciplined, they can even grow that fortune for future generations. The scale cannot, however, be allowed to tip so heavily towards the upper end of families that it has an increasingly negative effect the American economy, the American political system, and even the ability for an individual to make a living or own a home.
Before I leave this alone, for now, I'd like to bring in one last aspect of this conversation that I think is unpatriotic, disingenuous, and sticks in my craw. The idea that because someone has achieved significant wealth in the United States, they do not have a deep and abiding duty to the country that has given them this opportunity. Citizenship does not begin or end with economic status, but the greater your wealth, influence, and power, the greater your duty to your community locally, nationally, and internationally. To suggest that because you’ve made your millions you can detach from the world and forget the rest of humanity is to not only be grievously short sighted, but to hurt yourself as well. A strong tree can only survive in fertile soil. If the environment for growth dies, the largest titans fall. You haven't succeeded in spite of living in the United States, you've succeeded, in great part, because of it. The freedoms, luxuries, and security that the US provides were all factors in your success and combined with your own enterprise to bring you to your success. You have a duty to return that success and good fortune, back to that community and build a better future so that the next group of individuals have not just the same, but better opportunities and futures.
Money is one form of power, whatever people might say about it, and with great power comes great responsibility.